It is always crucial for businesses to mitigate their costs as an employer. But doing so now is even more important as employers begin to feel the impact of increased national insurance contributions (NICs) and National Minimum Wage (NMW) introduced in April 2025.

Adding to the pressures, the amended Employment Rights Bill (ERB) proposes significant changes to the employment law landscape. The ERB is expected to receive Royal Assent by summer, with some reforms potentially taking effect as early as October 2025, so now is the time to prepare. Employers should review their policies and practices to get ahead.

Practical actions for employers to manage payroll and workforce costs

There are no easy answers or quick fixes to mitigating rising costs, and many employers will have tough decisions ahead. While preparing for the changes, here are some practical actions for employers to consider.

Review pay and remuneration

• Reassess pay structures: With the cost of wages and employer contributions rising, now is a good time to reassess your pay structure. Make sure you are compliant with the NMW while you explore ways to mitigate costs. If raising pay across the board isn't feasible, consider offering performance-based bonuses, extra holidays or non-cash benefits like flexible working hours or wellness programmes. With these benefits, you can provide value to your employees without adding to your bottom-line burden.
• Ensure fairness and equity: Review your compensation packages for fairness and equity. Pay scales should reflect both market rates and your business’s financial reality, helping retain talent while managing costs effectively.
• Explore salary sacrifice schemes: Employees could trade a portion of their salary for NIC-efficient benefits such as extra pension contributions or electric vehicles. While these arrangements don’t benefit the lowest-paid staff, as the law requires their gross salary to remain above the NMW, they can benefit many others.
• Maximise tax efficiency: There are various ways to use benefits and expenses policies to maximise tax efficiency. You could use the trivial benefits exemption to offer small, tax-free perks to employees, organise tax-free annual events using the annual functions exemption, or provide tax-free meals using the canteen exemption. Another option is to restructure mileage payments for business travel and reclaim NIC on them where possible. Some employees value receiving net pay benefits to access services at cheaper rates.
• Offer tax-efficient share options: Offering shares can be a way to motivate employees without increasing payroll costs. You can provide employees with tax-efficient share options through an Enterprise Management Incentive scheme or by giving options to acquire shares via the Company Share Option Plan or Share Incentive Plan.

HR, personnel and hiring strategies

• Employ apprentices or invest in training: Employing apprentices can reduce costs. Investing in employee training and development also enhances skills and productivity, helping businesses to achieve more productivity with existing resources.
• Implement flexible working arrangements: Introducing more flexible working arrangements can motivate employees without changing pay. You could also hire part-time roles for specific tasks to keep costs down.
• Make use of government incentives: Take advantage of incentives for employing armed forces veterans or ensure you meet conditions to qualify for advantages of hiring within Freeport zones.
• Consider outsourcing or using AI: It can be more effective to outsource non-essential services and use consultants for some tasks. Making use of technologies like AI can also streamline the workload.

Reassessing your workforce needs as well as pay and benefit structures can uncover cost-saving opportunities. While reducing costs is paramount, it’s also important to consider how changes might affect operations and employee morale. It’s important to seek professional advice to tailor any changes to specific business needs and ensure compliance with relevant regulations.

To discuss this further, please contact Lee Knight, or your usual RSM contact.